Alongside digitalization, sustainability is the zeitgeist of our time, and while governments globally have escalated their action plans, real assets managers have a vital role to play. Nearly 40 percent of greenhouse gas emissions come from real estate and an even greater percent if you include infrastructure.
“We seek to lead the transition to a sustainable future,” says Helen Gurfel, head of sustainability and innovation for CBRE Investment Management. “Climate change mitigation and adaptation are essential if we are to curtail the potential for future negative environmental, social and economic impacts. According to a recent Aon report, in 2021 a total of $329 billion in economic losses resulted from climate-related events (up from $297 in 2020).”
“Taking a proactive response to the sustainability challenge is both an important source of risk mitigation and a value-creation opportunity for managers,” says Gurfel. “ESG isn’t about altruism. It creates long-term financial opportunities, mitigates risk and sustains our planet for future generations.”
Stéphanie Bensimon, head of Ardian Real Estate, the property investment business of the Paris-based private equity firm, adds: “Strong ESG practices now enable landlords to capture the high-end of market rents, subsequently increasing the value of assets while benefiting all stakeholders. Without implementing these ESG considerations, buildings risk no longer being competitive in their market, given expectations from both tenants and investors. Sustainability accreditations are becoming a new driver of market value.”
“We seek to lead the transition to a sustainable future”
CBRE Investment Management
There are opportunities both to secure and zone land for the development of new state-of-the-art sustainable buildings and to bring legacy stock in line with new standards. “An estimated 260 million square meters of European office stock is potentially going to become obsolete without retrofitting,” says Partners Group’s co-head of private real estate in Europe, Rahul Ghai. “ESG requirements and fiduciary responsibilities are starting to converge.”
A must-have in real assets
The same is true in infrastructure, where there is a clear need for additional renewable generation assets, for example, but also the need for managers that are willing to help other forms of infrastructure asset transition.
“With a mitigation or migration plan it is possible to create a portfolio of assets that have positively contributed to decarbonization,” explains Esther Peiner, co-head of private infrastructure, Europe, at manager Partners Group.
Indeed, there is no doubt that ensuring the integration of ESG into all phases of the real assets investment cycle is essential for long-term success. “It is not only the right thing to do as a fiduciary, it is what our clients want and it is what our occupiers want,” says Achal Gandhi, chief investment officer for indirect real estate strategies at CBRE Investment Management. “ESG is no longer just a ‘nice-to-have,’ it is a ‘must-have’ in the real assets world.”
Sustainability, digitalization, active asset management and an approach to real assets that embraces its expanding parameters, while retaining a laser focus on the nuances shaping the investment opportunities of the future, represent a new era for the real assets industry.
There will be winners and losers in a period of unprecedented change. Managers and investors must adapt if they want to stay on the right side of history.